Israelis pay over world average for bank fees: NIS 430 a year

NIS 430 a year, that is what the average household pays a year in bank fees for regular checking accounts, according to an internal Bank of Israel report TheMarker has obtained.

While the amount is similar - in nominal terms - to the world average, 78 euros in Israel compared to 76 euros around the world, in real terms bank charges are much higher here in Israel, however, because the world average is based on 20 developed nations in Europe and North America.

The reason is that the per capita gross domestic product (GDP) in Israel, which represents the standard of living, is much lower than the average in those 20 countries. In simple terms, in Europe it is much easier to afford those 76 euros a year for banking fees than in Israel - where the average wage is 30 percent lower.

The report reveals that the reason for the high fees banks charge households in Israel is the combination of high centralization along with lack of competition in the banking industry.

The concentration in the banking sector is higher in Israel than the world average, the report explains. However, it is similar to that in most countries similar to Israel with regard to size of the economy and population. Therefore, the real problem does not stem only from too much centralization.

The true cause of the high fees is the low level of competition. It turns out that the Israeli banking industry is not at all competitive. It functions as an oligopoly. The Israeli bank competition index is only 0.56, much lower than in most Western countries.

The average competition index in the 20 developed countries is 0.68, with Holland having the highest competition at 0.86.

So what is Holland's secret? It is also a small country with only 3 or 4 big banks. The secret is that in Holland, in addition to the few big banks, there are also 45 small banks - local and international - which compete with the big banks and raise the level of competition.

The result is that households in Holland pay the lowest amount of bank fees in the world on average: 25 euros a year. This is less than a third of what we pay in Israel.

There are no foreign banks in Israel that compete in the household market. Foreign banks prefer to avoid this market, since the big banks control it, and customers are a captive market. Also, foreign banks have no advantage in opening Israeli branches, since they cannot use them as a base for their operations in Arab states.

The authors of the report recommend an encouragement of competition in the banking industry, both in the long and short term.

To accomplish this they recommend supervising the cost of banking services and significantly improving the level of transparency of the banking sector - so that the customer knows exactly what he is paying for.

The report recommends that the number of fees charged be reduced significantly and also calls for preventing the situation where their number rises again soon afterward. After reducing the number of charges, the report recommends that all new fees receive approval of the Supervisor of Banks, in the Bank of Israel.

The banks will also be required to give each fee the same name, so customers will be able to compare between banks. They will also be required to present the list of fees charged to households separately from the general list and to notify customers clearly of charges.

Finally, the report recommends that only in cases where all these changes do not help, the supervisor would intervene directly in setting the fee - but only as a final resort.

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The first point to note is that Israel has a significantly lower standard of living than most Western countries. For many people who make aliya - they know this and decide to try and cope anyway. Israeli's correctly view themselves as less well off than their American counterparts. It is also true though, that the Palestinians view themselves as far less well-off than the Israeli's, and this contributes in large part to their anger against Israel. Some compensation in financial terms would have reduced some of their hatred.

I wonder why foreign banks stay out of serving non-business customers in Israel.
Is it because israel is small? Maybe. But I can find plenty other smaller countries that do have presence of international banks in personal banking.
Is it the lobby of the local banks? Perhaps the government made it too hard for foreign banks to enter the personal banking market? In such case, the government is to blame.
COULD SOMEONE PLEASE INVESTIGATE THIS ISSUE?
I have been trying to figure this one out since my first day in Israel. The banks are the most frustrating part of Israel for me (Ukrainian who lived in the States). The day when I go to the bank is marked in a black color for me. They don't know what service is. Seriously. They expend so much of my nerves that sometimes I want to say like Cartman from South Park: "Screw you, guys, I am going home!"

israeli banks are the worst in the developed world. if i deposit money into a bank, and choose not to get an atm card or checks, why do I have to pay fees to the bank??? I am giving them money to invest and they charge the customer for this. For this reason I will try at all costs to avoid using an Israeli bank, unfortunately sometimes its necessary to have one to get certain services. I've never paid anything to have an account in the US, i get paid interest, and get free checking and atm card. Israeli banks really need to stop ripping off those who can least afford it.

I have had a bank account in the UK for over thirty years and have never paid any bank charges.
In most banks, as long as you stay in credit, cheques, statements, deposits are all free.
So in what way is Holland the cheapest country?
Maybe it is for business accounts or accounts in debit? Or are credit card charges part of the calculation?

I got out of the Army five years ago , upon my release the Ministry of Defense deposited a sum of money into my bank account that could not be withdrawn for five years, unless certain criteria were met. I waited the five years and boy was I surrprised my investment earned a measly 1% a year that is less then inflation, so I acctually lost money in this deal. we need more transparent procedures in this country

Thank you Ms Shtaster for pointing out the high bank fees in Israel. What was not mentioned though is the fact that penalties and fines on overdraft is far higher than any developed country and is linked to a cost of living index which inflates the amount even further. Suppose you were to open a checking account with 100 NIS (about 25 dollars) and forgot about it. 2 years later you would owe thousands of shekels to the bank. If not paid, the bank has the power to freeze other assets or hire private police to repossess your properties.

The Israeli government doesn't care about the corruption in the banking system. They don't care about the corruption in the parliment. They don't care about their people getting financially beaten. The Israeli people are too used to being raked over the coals to bother fighting back. Welcome to Israel.

we all know that, the reason for this is because unlike other countries there are no International banks present here to give local banks competation. The banks here are all really connected and charge the highest fees they can while giving the worst service to their customers, it is about time that International banks were brought in here to show the public what banking should be like and that way local banks would also iimprove to be competative. Let City Bank, Chase Westminster bank,NG bank open branches in Israel see how fast our local Israeli banks start giving good service and lower their fees,stop protecting corrupt banks, help the consumer!

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